The changing regulatory landscape, higher minimum capital requirements, and the fragmented market will further drive M&A activity for Saudi Arabian insurance companies, says Fitch Ratings in a new report.
Fitch expects new solvency regulations to drive consolidation among smaller Saudi Arabian insurance firms, thus strengthening the market. The market is dominated by a few large companies, with the four largest having 66% market share. However, new solvency regulations may take time to be issued and implemented.
Fitch expects the motor sector to grow as mandatory insurance cover for motor vehicles is increasingly enforced following the introduction of a new electronic platform, Absher, for the renewal of car registrations. The international credit rating agency believes that the digitalisation of this process will help to reduce the number of uninsured vehicles.
The loss ratio in medical lines fell to below 80% in 1H2020 due to the temporary decrease in medical claims, driven by the postponement of non-essential medical treatment in the wake of the COVID-19 pandemic. Fitch expects profitability in medical lines to return to a loss ratio of close to 85% in the next two years. There might be an increase in claims once the pandemic subsides, with hospitals catching up on postponed treatments. However, the decrease in insured lives following expats leaving Saudi Arabia will make premium growth challenging.
Nevertheless, Fitch expects insurance penetration to improve, driven by the anticipated expansion of the motor insurance market and the newly introduced insurance for pilgrims. Growth in GWP could be also fuelled by an increase in bancassurance, following Saudi Central Bank's issuance of regulations governing bancassurance activities in Saudi Arabia.